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Recap of SAS No. 143, Auditing Accounting Estimates and Related Disclosures

Recap of SAS No. 143, Auditing Accounting Estimates and Related Disclosures

Statement on Auditing Standards No. 143, Auditing Accounting Estimates and Related Disclosures, was issued by the Auditing Standards Board of the AICPA in July 2020.  The SAS is effective for audits of financial statements for periods ending on or after December 15, 2023.  Early adoption is permitted.

SAS No. 143 - Summary

SAS No. 143 supersedes AU-C Section 540, Auditing Accounting Estimates, Including Fair Value Accounting Estimates, and Related Disclosures. It also amends various other AU-C sections in the Codification.

Accounting estimates are monetary amounts for which the measurement, in accordance with the requirements of the applicable financial reporting framework, is subject to estimation uncertainty (e.g., depreciation, obsolescence, valuation, etc.) Accounting estimates also include monetary amounts included in disclosures or used to make judgments about recognition or disclosure.

Accounting estimates vary widely in nature and are required when the monetary amounts cannot be directly observed.  The process of estimation involves selecting and applying a method using assumptions and data, which requires management judgment.  There is generally inherent subjectivity and variation in the measurement of outcomes.  SAS No. 143 includes requirements and guidance related to the evaluation of misstatements of accounting estimates and related disclosures, and indicators of possible management bias.

While AU-C Section 315 requires the auditor to assess risk of material misstatement at the relevant assertion level, this SAS requires inherent risk and control risk to be separately assessed for accounting estimates.  The assessment of inherent risk depends on the degree to which the risk factors affect the likelihood or magnitude of misstatement. 

The degree of estimation uncertainty will vary substantially.  By nature, some accounting estimates have low estimation uncertainty.  Therefore, extensive risk assessment and further audit procedures would not be necessary.  When estimation uncertainty, complexity or subjectivity are higher, the extent of procedures would increase.

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Jennifer is a CPA who has more than 25 years of experience in designing high-quality training programs in a variety of technical and “soft-skills” topics necessary for professional and organizational success. In 2003, she founded Emergent Solutions Group, LLC, where she focuses on designing and delivering practical and engaging accounting and auditing training. Jennifer started her career in audit for Deloitte & Touche. She graduated summa cum laude from Marymount University with a B.B.A. in Accounting.